Scarborough and Secretary, Department of Family and Community Services

[2005] AATA 1178

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 1178

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No S2005/139

GENERAL ADMINISTRATIVE DIVISION		)
Re		KATHRYN SCARBOROUGH

Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Senior Member L Hastwell

Date29 November 2005

PlaceAdelaide

Decision The Tribunal sets aside the decision under review and remits the matter to the Department with the direction to re-assess the applicant’s FTB entitlements during the relevant period based on the Tribunal’s finding that $18,750 of the sum that she received as a maintenance payment in the 2004/05 financial year was a capitalised maintenance payment which was intended to cover the period from 11 years prior to the date of her receipt of the funds until the date that her youngest child will achieve the age of 18 years.

..............................................

L HASTWELL
  (Senior Member)

CATCHWORDS

SOCIAL SECURITY – pensions, benefits and allowances – Family Tax Benefit – applicant entitled to lump sum arrears of child support – maintenance liability – monies assessed as income in year of receipt – FTB significantly reduced –characterisation of payment – whether maintenance or capitalised maintenance income –payment terminates payers child support obligations both past and future – decision set aside

A New Tax System (Family Assistance) Act 1999 s 58

Child Support (Assessment) Act 1989 ss 12, 151

REASONS FOR DECISION

29 November 2005 Senior Member L Hastwell     

1.      Kathryn Scarborough (the applicant) was owed 11 years worth of child maintenance arrears by the father of her four children when the Child Support Agency (CSA) finalised an agreement with the father whereby he paid one lump sum payment of $26,500.00 to the CSA, to finalise his child support liability.  The payment was inclusive of a costs payment to the CSA of $1,500.00.

2.      On 30 September 2004 the applicant advised the respondent (the Department) that she had received the sum of $25,000.00 by way of a lump sum child maintenance payment for her four children.  The Department initially treated the full payment of $26,500 paid by the father as being the child maintenance sum received by the applicant.  This payment was treated as periodic child maintenance arrears, and on 1 October 2004 a delegate of the Department decided to attribute the payment to the applicant as income received by her in the year of receipt.  A reassessment of her Family Tax Benefit (FTB) resulted, and her Family Tax Benefit Part A was significantly reduced.

3.      That decision was affirmed by an Authorised Review Officer on 13 December 2004.  The applicant sought a review of that decision to the Social Security Tribunal (the SSAT).  On 15 April 2005 the SSAT varied the decision only insofar as it determined that the $1,500.00 costs component should be excluded from the sum, and not assessed as income against the applicant.  The SSAT affirmed the decision that the balance of the sum should be attributed as income in the year in which it was received, and was not to be treated as capitalised child maintenance, but as periodic child maintenance.

4.      The applicant seeks a review of that decision to this Tribunal.  The position has changed slightly between the date of the SSAT hearing and the date of the hearing before this Tribunal.  By the time the applicant received the lump sum payment, one of her children was over the age of 18 years, and therefore one quarter of the sum received cannot be attributed as income to the applicant.  The Department’s position is now that the sum of $18,750.00 should be assessed against the applicant as being maintenance income in the year in which it was received.

5.      The applicant’s position is that the payment should be treated as a payment to be allocated over the entire time to which the payment relates which she understood to be for the last 11 years (being the arrears period), and until the youngest child achieves the age of 18 years.  She claims that an incorrect assessment has been made of her rate of FTB and that the rate should be reassessed.

legislation

6. Section 58(1) of the A New Tax System (Family Assistance) Act 1999 (the Act) provides that the annual rate of FTB is to be calculated in accordance with the Rate Calculator in Schedule 1 of the Act.

7.      Division 1 Clause 3(1) of the Act defines “maintenance income” in relation to an individual as follows:

“maintenance income, in relation to an individual, means:

(a)child maintenance—that is, the amount of a payment or the value of a benefit that is received by the individual for the maintenance of an FTB child of the individual and is received from:

(i)        a parent of the child; or

(ii)       the partner or former partner of a parent of the child; or

(b)partner maintenance—that is, the amount of a payment or the value of a benefit that is received by the individual for the individual’s own maintenance and is received from the individual’s partner or former partner; or

(c)direct child maintenance—that is, the amount of a payment or the value of a benefit that is received by an FTB child of the individual for the child’s own maintenance and is received from:

(i)        a parent of the child; or

(ii)       the partner or former partner of a parent of the child;

but does not include disability expenses maintenance.”

8.      Schedule 1, Division 5, Clause 19A of the Act provides:

“In this Division, if the FTB child of an individual receives maintenance income, the individual is taken to have received the maintenance income.”

9.      Schedule 1, Division 5 of the Act details the effect of maintenance income on Family Tax Benefit.  Clause 20A of the Act provides calculations for annualizing maintenance income.  The formula is set out as follows:

“Object of clause

(1)The object of this clause is to annualise the maintenance income (other than capitalised maintenance income) (CMI) of an individual during an income year.

Annualisation of maintenance income other than CMI

(2)If an individual receives maintenance income (other than CMI) from another individual during any period or periods (the relevant period or periods) in an income year, the annualised amount of the maintenance income of the individual is worked out using the following formula:

The amount of maintenance income  Number of days

(other than CMI) received by the                  x        in the income year

individual during the relevant period   Number of days

or periodsin the relevant period

or periods

10.     Clause 20A(3) of the Act provides for the commencement of the relevant period.  The relevant provision in this instance is Clause 20A(3)(d) which provides:

“(3)

…

(d)in the case where the maintenance liability exists on 1 July of the income year in which the maintenance income is received—1 July.”

11.     The effect of that formula is that any maintenance income received in a financial year is treated as being maintenance received in that year only and it cannot be apportioned over the entire time frame to which it might relate, which in this case was a number of years.

12.     The formula in Clause 20A of the Act does not apply to maintenance income that is capitalised maintenance income.

13.     Clause 20A(6) of the Act determines the end date of the relevant period for the purposes of the formula in  Clause 20A(2), and provides as follows:

“(6)A relevant period, in respect of maintenance income (other than CMI) received under a maintenance liability in an income year, ends either when the maintenance liability ceases (if it ceases before the end of the income year) or on 30 June of the income year.”

14.     Clause 20A(10) of the Act provides a definition of maintenance liability as follows:

“(10)    In this clause, maintenance liability means a liability to provide:

(a)      child support; or

(b)      maintenance (other than child support) that arises as a result of:

(i)        the order of a court; or

(ii)a maintenance agreement (within the meaning of the Family Law Act 1975) that has been registered in, or approved by, a court in Australia or an external Territory; or

(iii)      a financial agreement within the meaning of that Act; or

(iv)any other agreement with respect to the maintenance of a person that has been registered in, or approved by, a court in Australia or an external Territory.”

15.     There is no definition of capitalised maintenance income contained in the Act.

the hearing

16.     The applicant represented herself at the hearing.  The T documents were received into evidence and it was agreed that the amount of maintenance income that was to be considered by the Tribunal for the purposes of the hearing was $18,750 as the oldest child had achieved the age of 18 years when the funds were received.

17.     The applicant said that her understanding of the payment that she received in October 2004 was that it represented settlement of arrears owed to her, plus it dealt with any future child support liability.  She said that she was asked to put in writing to the CSA that she wanted no further child support and her understanding was that by accepting the payment she had finalised all her entitlement to child support for the children until the youngest child achieved the age of 18 years.  She showed the Tribunal correspondence from the CSA (Exhibit A1) which demonstrated that the father’s liability ceased on 30 August 2004.  She said that no further assessments have issued.

18.     The applicant advised that the father of her children is well to do, but has been able to successfully avoid paying a lot of his child support obligations over the years.  She had given up any hope of ever receiving any child support when she was contacted by a Mr Whelan from the CSA, who said that a lump sum was being offered to resolve the whole matter.  She had been aware that the CSA was continuing to pursue the father of her children in an endeavour to chase the significant arrears owed to her.

19.     The applicant pointed out that for 11 years she had struggled bringing up her four children without any maintenance, and as the father of the children does not reside in Adelaide, she has had significant pressure on her financially and emotionally.  She sees the principal objects of the Child Support (Assessment) Act 1989 (the CSA Act) as being to ensure that children receive financial assistance, and the effect of the way in which the lump sum payment has been treated by the Department has been that she has lost thousands of dollars of that payment because of her loss of FTB and Rent Assistance. If the payment was allocated over the period to which it related she would have suffered no reduction in her FTB entitlement. She asked at the hearing that the Tribunal consider whether the payment should be treated as capitalised maintenance income.

20.     The Department’s position was that the payment had to be characterised as a lump sum payment of the father’s liability to pay child support, and could not be characterised as capitalised spousal maintenance as the payment was to satisfy an accrued maintenance liability.

21.     At the conclusion of the hearing the Tribunal requested that the Department obtain a written response to the following questions from the CSA:

·What was the sum of child support arrears owing at the date that the settlement was achieved with the father of the applicant’s children?

·Did the CSA issue a summons for the arrears, and was the sum of money settled as a result of that action?

The Tribunal also requested that it be provided with a copy of any signed documents by either the applicant or the father of her children with respect to the terms of settlement.

22.     Subsequent to the hearing and in response to this enquiry, a letter was received on 26 September 2005 from the Department with an attachment headed “Additional Evidence” which outlined the questions asked of the CSA by the Department and the CSA response.  The Tribunal accepted this document as Exhibit R1, and it was provided to the applicant for her comments.  The applicant’s response was to ask that the sum received be allocated over a period of 17 years, and that it be treated as 11 years of past maintenance and 6 years worth of future maintenance.

23.     The relevant portion of the response provided by the CSA to the questions put by the Department was as follows:

“1.       The maintenance arrears at the time of the settlement were $29,670.56.

2.I recall that there was an offer in writing from Mr Ritchie.  This correspondence would be in the paper file and would need to be recovered from storage … There was no written agreement as such between the two parties.

3.The current status of the CSA case is that it has ended and there are no arrears.

4.I believe that the amount of $25,000 which was agreed upon by Ms Scarborough should be considered as capitalised maintenance …”

findings of fact

24.     The Tribunal makes the following findings of fact:

·The applicant is the mother of four children.  She separated from the father of her children many years ago.  The children have all continued to reside with her.

·Child support assessments have issued with respect to the father’s obligation to pay child support and he has defaulted with respect to payments.  As at July 2004 the maintenance arrears owed by him to the applicant were $29,670.56.

·The CSA had been endeavouring to recover maintenance from the children’s father for some time.

·By July 2004, the eldest of the four children had achieved the age of 18 years and was no longer a FTB child.

·Negotiation took place between the CSA and the father.  It was eventually agreed that if applicant would elect to terminate her entitlement to child support for her children in the future, then the father would agree to pay a lump sum of $25,000 by way of maintenance for the children, such sum to cover all past , existing and future maintenance liability of the father.

·The applicant made a written election to have child support entitlements cease.  This election was made at the request of the CSA and was accepted by the Registrar for Child Support as part of the agreement reached between the CSA and the father.  This acceptance was evidenced in a letter from the CSA to the applicant dated 1 August 2004 (Exhibit A1).  The lump sum was then paid to the applicant.

·An assessment of the father’s obligation to pay maintenance then issued showing an end date of assessment of 30 August 2004.  No further assessments will issue.

consideration and application of the law

25.     The Department’s strong contention throughout was that because there was a maintenance liability and there were maintenance arrears as at 1 July in the year of receipt of the lump sum, then the sum paid could not come within the concept of capitalised maintenance income.  There is no definition of capitalised maintenance income in the Act.  The Oxford Dictionary definition of capitalise is “to convert into capital”.  

26.     The Family Assistance Guide (the Guide) which was provided to the Tribunal as part of the Department’s submissions defines capitalised maintenance income as:

“Capitalised maintenance is maintenance that is paid as a lump sum to satisfy maintenance liability for a period of time.  Capitalised maintenance is apportioned over the period.”

27.     Further on in the Guide there is a reference to capitalised maintenance as being a “lump sum cash payment” and some examples are given of capitalised maintenance, none of which are directly relevant in this case.

28. The Tribunal looked to the provisions of the CSA Act to see if some assistance could be provided in characterising the payment made to the applicant. Section 12 of the CSA Act provides for the series of what are known as “child support terminating events”. 

29. Section 12(4) provides as follows:

“(4) A child support terminating event happens in relation to a child and the persons who are respectively a carer entitled to child support and a liable parent in relation to the child if:

(a) either of the following subparagraphs applies in relation to the child and those persons:

(i) the carer entitled to child support elects by a notice that complies with section 151 (Election by carer entitled to child support to end administrative assessment) that the liability of the liable parent to pay or provide child support for the child to the carer entitled to child support is to end from a specified day;

(ii) the Registrar accepts a child support agreement made in relation to the child between the carer entitled to child support and the liable parent, and the agreement includes provisions under which the liability of the liable parent to pay or provide child support for the child to the carer entitled to child support is to end from a specified day; and

(b)      the specified day arrives.”

30. Under s 151 of the CSA Act the Registrar must accept that election before it can bind parties. The Tribunal noted a letter dated 1 August 2005 from the CSA to the applicant (Exhibit A1) which reads as follows:

“Dear Kathryn

You have requested that the child support payable for Danielle, Alyssa and Hannah cease.  We have accepted this request.  This means that Michael will not longer have to pay child support for them.  The assessment ended on 30 August 2004.

…”

31.     An assessment issued with that letter which assessed the father’s child support for the period 1 July 2004 to 30 August 2004 and that purported to be the end of the assessment.

32.     The CSA has now itself stated that the payment in question is a capitalised maintenance payment.

33.     It would appear that in this case, as part of a negotiation to resolve a long running maintenance dispute with the father of these children, the CSA negotiated that the applicant would elect to end her entitlement to pursue arrears of maintenance and to future administrative assistance of her entitlement to child maintenance in return for a lump sum payment.  That lump sum bore no correlation to the arrears over the time, or to any estimate of his future liability.

34.     In the negotiated settlement the Department appears to have merged the arrears owed to the applicant into a general settlement, which included a settlement of the father’s entire future liability for child support.  The future maintenance entitlement would in itself on all accounts be significant if the agency were able to properly assess the father’s liability and actually get him to pay.  By all accounts the father is adept at avoiding his obligations.  The sum awarded may well have been less than the future maintenance the applicant elected not to pursue and it did not represent full payment of the arrears in any event.

35.     The father appears to have achieved such a commercially favourable settlement for himself by making it so very hard for the CSA to obtain maintenance off him over a number of years.  It appears likely that they wanted to get him off the books.

36.     It is the Tribunal’s view that the applicant elected to convert into capital a long term liability that both pre and post dated the payment to her.  Had she received a payment only for arrears and an ongoing liability existed, then the payment could not be characterised as capitalised maintenance.  However, this payment is a lump sum conversion of a past and future liability that well exceeds the sum paid.  It was a commercial settlement of a long running negotiation between the CSA and the father of the applicant’s children.

37.     In the circumstances the Tribunal is satisfied that the sum in question is a capitalised maintenance payment and it should be treated as such by the Department.

38.     In the circumstances the Tribunal sets aside the decision under review and remits the matter to the Department with the direction to re-assess the applicant’s FTB entitlements during the relevant period based on the Tribunal’s finding that $18,750 of the sum that she received as a maintenance payment in the 2004/05 financial year was a capitalised maintenance payment which was intended to cover the period from 11 years prior to the date of her receipt of the funds until the date that her youngest child will achieve the age of 18 years.

I certify that the 38 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member L Hastwell

Signed:         ...........J Coulthard .......................................
  Associate

Date of Hearing  15 September 2005
Date of Decision  29 November 2005
Counsel for the Applicant         In person
Solicitor for the Applicant          -
Counsel for the Respondent     Ms J Powell
Solicitor for the Respondent     Centrelink Legal Services Branch